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2017-08-22

The pile of unpaid benefits is a national crisis that needs multilateral action

Co-ordinated effort backed up by new law is the starting point to pay out billions of rand owed to the public

Business Day reported recently that in 2016 pension and provident funds registered in terms the Pension Funds Act (PFA) were holding unclaimed benefits — or, more properly, unpaid benefits given that some beneficiaries have tried unsuccessfully to claim theirs — with an aggregate value of about R41.7bn. This figure had risen by almost R8bn from the R34bn reported by the registrar the previous year.

The increase requires urgent explanation by the registrar.

These are not social welfare benefits — they have been earned by employees and are due to them or, if they have died, to their dependants, most of whom are no doubt in desperate need of the money.

The R41.7bn does not include unpaid benefits for which retirement funds that are not subject to supervision in terms of the PFA are liable, such as the Government Employees Pension Fund and the Transnet funds. The problem is even bigger than unpaid benefits for which retirement funds are liable. There are also unpaid benefits due by medical schemes, bargaining council and union benefit funds, dormant bank deposits and unpaid proceeds of insurance policies and investments in investment funds.

Furthermore, there are unpaid amounts due by the Unemployment Insurance Fund, the Road Accident Fund and funds for the compensation of occupational injuries and diseases. Finally, there are maintenance payments held by the Department of Justice and amounts held by the Guardian’s Fund.

The scale of unpaid amounts due to members of the public represents a national crisis. SA cannot claim to be committed to "treating customers fairly" and "financial inclusion" while millions of people continue to be deprived of money due to them.

The problem demands substantive measures to tackle it but no one institution alone has the power and capacity properly to do this. New institutions, new regulatory measures and greater collaboration between various interested parties including the state, regulators and the private sector are needed.

The Financial Services Board has recently established a searchable database populated with information about unpaid benefits. As that information has been supplied voluntarily by only some retirement funds registered in terms of the PFA, it is incomplete. While the Financial Services Board’s initiative has been helpful, it is not enough.

A national register of all unpaid amounts that are due to the public is needed. It could be established, maintained and operated by the state or a public-private partnership, possibly involving organisations such as Astute Financial Exchange and BankServAfrica, which have experience in the operation of large, multiuser databases.

The register could also be populated with information about beneficiaries (those entitled or who will become entitled to these monies) drawn from these institutions as well as from the South African Revenue Service (SARS), the Unemployment Insurance Fund, the Department of Communications’ Rica database, the departments of home affairs and social development, and other bodies or organs of state likely to have such information.

These institutions and custodians of the unpaid amounts could be required by law regularly to furnish information about these assets and beneficiaries to the national register. Employers, employment agencies and others capable of providing proof of employment and the like could be compelled to provide it on request by the national registrar and to claimants and their funds without charge. Information about foreign beneficiaries could be sought from governments and regulators in other countries in the region. It should then be made possible for the public to securely access the register, identify and locate assets to which they may be entitled, and obtain information on how to claim those assets. This could cause a substantial reduction in the costs of tracing and paying beneficiaries.

Money for the establishment and maintenance of this database is available in retirement funds that are holding assets to provide for liabilities for members about whom their records are so poor that they will never be able to identify — let alone trace and pay — them. These funds could be required by law to transfer those assets to a proposed National Stewardship Fund. The corresponding liabilities should likewise be transferred to that fund so that people who can demonstrate they are entitled to be paid a benefit by a transferor pension fund may be paid that benefit by the National Stewardship Fund instead.

The state or a public-private partnership could establish such a National Stewardship Fund, to which assets in the custody of retirement funds and financial institutions held for unidentifiable persons would be required by law to be paid. The state could underwrite the liabilities of the fund, which would then justify the use of the fund’s assets for purposes other than meeting the liabilities transferred to it.

Those that fail to ensure they properly capture information … could have their licences to accept new business suspended

The fund should be made subject to regular audit and actuarial valuation and should keep only the amount its valuator recommends to provide for liabilities it is likely to be required to meet. The rest could be used to pay for the establishment and maintenance of a national financial assets register and national payment system. To improve access to unpaid benefits and other amounts, a national payments system with national, and possibly even cross-border, reach could be established in which retirement funds and other financial institutions would be required by law to participate. It could entail the use of digital currency or e-wallets, or branches of the Post Office and banks, local and foreign, for manual payments.

To improve access to claims facilities and reduce the costs otherwise to be borne by individual funds or other custodians of unpaid financial assets, joint "road shows" could be conducted across the country and in other countries in the region by representatives of organs of state (including foreign state representatives when in other countries) and private sector custodians. To improve "consumer power" and accountability on the part of funds and their administrators, community organisations, advice offices, churches and the like could be trained to assist claimants without charge to claim their benefits and follow up those claims.

Employers could be required to supply their employees’ cellphone numbers and identity information when enrolling them as members of funds and to annually update that information. Fund and investment administration systems including their information technology and human resources components, could be made subject to more rigorous audit by regulators and those that fail to ensure that they properly capture information in their records could have their licences to accept new business suspended until they fix the problem.

Funds and administrators could be required to regularly report on and explain why amounts that have accrued have not been paid within six months of accrual and have remained unpaid thereafter, and what they have done about it. To promote accountability, these reports could be made available to the public.

Funds and financial services providers could be prohibited from accepting new members or customers while there is reason to believe that they have failed to substantially improve their enrolment and claims payment performance.

Funds and investments may have to be prepared to pay more for better administration, but that is okay. Cheap, shoddy administration defeats the objects of the funds. Cost savings should be sought elsewhere.

Retirement funds and financial services providers could be prohibited from rewarding those appointed to administer the unpaid amounts or manage the assets held to provide for them. Other conflicts between the interests of those responsible for the governance, administration and investment of unpaid amounts and their duties could be minimised by regulatory measures. Other measures that should be adopted include:

The conclusion of bilateral agreements (or improvements in the terms of existing agreements) with foreign governments to improve cross-border claims and transfers; and

Improvements in the processes for obtaining tax directives from SARS.

• Hunter is a specialist pension-law attorney practising at Fasken Martineau attorneys in Sandton and a visiting senior lecturer at the University of the Witwatersrand. She is a former deputy registrar of pension funds. She writes in her personal capacity.